Governance is always difficult, and no more so than in relation to major public organisations.
The government announced yesterday that David Gonski would become the new chair of the Board of Guardians of the Future Fund. That was no surprise — his name had been speculated about for a while. What was unusual was the extent of that speculation and the unseemly controversy generated around the appointment.
An old stock market saying is “buy on the rumour, sell on the fact”. Australia’s financial media seemed to reverse this. Stories about the Future Fund were inflated on rumours and downplayed on facts.
The headlines today were smaller, and the stories (other than in The Australian Financial Review) further inside the papers, than those last week before a decision was taken. In governance terms it would have been better if the various journalists who chose to speculate had held off until after a decision.
But that is not how media works. Journalists will always fan the fire of speculation if given suitable fuel. A good appointment like Gonski is not nearly as exciting as rumours or ructions. “Sensible choice for board” is hardly a spectacular headline.
What is surprising is that some of the current guardians chose to provide the media with the fuel for that speculation.
What is it about government boards, where it seems acceptable for some board members to go public about internal matters? It would not be considered proper in a listed company or other large funds for board members to publicly criticise the nominations committee or get stuck into the major shareholders.
Yet both outgoing chair David Murray in The AFR, and outgoing member Brian Watson in The Australian, were critical of the selection process.
It is not the only government board where this has happened. Other government businesses or funds have experienced similar in the past. For example, when former finance minister John Fahey changed some of the members of the board of Employment National after the organisation failed spectacularly to win a big tranche of government business, they saw fit to brief the opposition with their list of grievances. State and territory boards have seen similar examples.
This makes public sector appointments tough on government. If it goes through a proper process, and does not respond until it has made an appointment — which is good governance — then stories based on speculation get a run. Ironically, by the time the government does announce the appointment it is regarded as yesterday’s news.
The Future Fund is important. It is one of the world’s larger sovereign wealth funds, and as the list of board members suggests, guided by some of Australia’s leading corporate figures. It represents a huge asset for the Commonwealth of Australia and is a highly influential investor.
So when there is a public spat about appointments, it matters. However, it is different to anything similar that might occur in other companies, because it is a government entity. Public speculation does not affect a traded share price or fund performance (the Future Fund is wholly independent in its investments).
It is possible that one of the reasons there is more likelihood of public controversy around appointments to government boards is that the negatives are less obvious. Not only that, but because those who represent the shareholder or owner interest are ministers (ie: politicians) the environment is inevitably far more political.
Nevertheless it still looks bad.
The suggestion that it was improper for Gonski to have advised the government on the future make-up of the board but now be appointed is misguided. That kind of thing happens. It is not frequent, but also not uncommon, with other boards. If we were to exclude everyone from boards who also advised boards, then those boards would be even smaller and less diverse than they are now.
Similarly, the argument that the new chair should only have come from existing board members is odd. If that were the case, why bother with searching for a candidate at all? A lengthy process was conducted by search firm Heidrick and Struggles last year that was also an input into the government’s decision making. If there is a good external candidate, then it is worth considering them. According to media reports, some of the guardians did in fact suggest David Gonski.
The whole affair does though suggest though that if there is a governance lesson in this for the next appointment, it is that the process has to be finalised earlier. Governments tend to wait to the last minute before announcing major appointments — so it is not doing anything unusual or unprecedented this time. With perfect hindsight, it was not the best approach for this particular appointment.
Whether governments can ever be weaned off last-minute appointments is a more difficult question. It is in the nature of politics that tricky decisions are inevitably left as late as possible in case some other political event turns up. That applies whatever party happens to be in office.
One of the Future Fund guardians who knows this from personal experience is former Treasurer Peter Costello. He might have chosen to comment, and likely would have been able to do so pretty coherently — he has more media experience than most. But he did not. That reflects well not only on his judgment, but also his level of understanding of the realities of working inside a public body.
*Stephen Bartos is author of Public Sector Governance Australia (CCH, Sydney) and an Executive Director of ACIL Tasman